Trends & alignments influence risks
Understanding transition risk requires looking at trends, such as the evolution of lithium ion batteries. Prices of lithium ion batteries have dropped 79% over the past 10 years, helping battery-electric drive trains become more cost effective in many markets.
In the world’s largest car market, China, car sales by EV automakers BYD and Tesla have been on the upswing since 2020, while car sales from automakers that still manufacture combustion-engine vehicles have trended down over the same period.
Notably, the share of electric vehicles sales in China is already 30% (and forecasted to go to 50% in just two years). In Europe, a third of sales are also already electric. And in India, there’s been a ninefold increase in the sales of EVs over the last two years.
Considering market exposures
Bloomberg NEF approaches transition risk by thinking about companies' exposures, as two companies with exactly the same carbon footprint can have very different market exposures. One company might pay for both jet fuel and gasoline, for example — exposing them to both the aviation sector and the road transport sector — whereas another only pays for one.